Unit Trust Is Closing - What Can I Do?

Question:

In 2007, as part of a medium-term strategy for my retirement, I invested a considerable sum with ASB Unit Trusts. The sum invested was spread over the following trusts: Money Market, NZ Fixed Interest, NZ Property, NZ Shares, World Fixed Interest and World Shares. This conservative, diversified spread, I believed, would yield a good return over the medium to long term and was a safe investment.

How wrong I was.

After just three years my investment is now worth 12 per cent less. Following my initial investment, the value of my portfolio never again reached the starting level and fell more than 18 per cent at one point. I was naturally concerned, but understood the effect that the global financial crisis was having on the markets. However, I felt that as I was in for the long term my investments would eventually come right and was prepared to sit tight.

Wrong again! I have now received a letter from the ASB advising that the various trusts are to be wound up on 30 September, 2010. How can ASB arbitrarily do this? This investment strategy was meant for the medium to long term.

Three years can hardly be classified as that.

I have also read ASB's press release where it says, "The amount of money in the funds had been reducing over time as investors had transferred to more modern alternatives". This certainly does not apply to me. I have never received any communication with respect to my ASB Trusts apart from regular statements. No one from ASB, at any time, has advised me to move my money to "more modern alternatives". This is just PR claptrap.

Surely ASB should be held accountable for the loss of my capital.

You can be sure that ASB took its fees during this period. The letter from ASB states it will "be sending me alternative investment options that I may wish to consider". I will certainly not be putting any more money with the ASB.

Answer:

Mary Holm: ASB Group Investments can, indeed, close these unit trusts, says Stewart
McRobie, ASB's chief executive relationship banking. "As with all unit
trusts, the investment statement specifies the circumstances under which
a fund can be closed."

The important point that you seem to misunderstand - and perhaps it's
ASB's fault for not making it clearer - is that if you transfer to
another similar ASB fund or funds, it should make little or no
difference to you.

"Some of the new funds also offer a simpler diversified investment,
which a lot of our customers say they want," says McRobie. And you won't
be charged any exit or entry fees.

As far as your investment losses are concerned, you'll buy into the new
funds at the same time as you're exiting the current funds, so your
position in the market shouldn't change.

There's nothing to stop you simply picking up where you left off,
maintaining your nicely diversified investments until retirement. It's a
bit like changing ships partway through a voyage, and finding that the
new vessel is at least as good as the old one, and quite likely better.

If you don't want to stick with ASB - and it does sound as if they
haven't communicated well with you - you could achieve much the same
result by moving into similar funds run by another fund manager.

Quite apart from your situation, there's another issue here. Could ASB
be playing a game we sometimes hear about, in which a fund manager
closes down funds that have been hit badly in a market downturn, and
then starts new funds at that low point? They get rid of the dross, and
the new funds are likely to grow fast from a low base.

McRobie denies this. "We're not doing it to try to show better returns,"
he says. For one thing, ASB Group Investments hasn't opened any new
funds lately. "The funds we can offer investors as an alternative were
set up in 2007."

At that stage ASB stopped marketing the funds it is now closing. Since
then, "We've been maintaining those funds with a significantly shrinking
number of investors, with all the compliance and other costs. We are a
business," he says.

Sounds reasonable. No fund manager can be expected to continue all its
funds forever. In the end, if ASB was to keep running what McRobie calls
"sub-scale" funds, that would probably result in higher fees. Who needs
that?

Mary Holm is the author of bestselling books on KiwiSaver and
personal finance. She is also a highly praised seminar presenter. Her
written advice is of a general nature, and she is not responsible for
any loss that any reader may suffer from following that advice.